Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Significant Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES

Income Taxes

The Company had $3 million of unrecognized tax benefits at June 30, 2011 and December 31, 2010, that, if recognized, would favorably impact its effective tax rate. The Company has increased its unrecognized tax benefit by $70 million in the six months ended June 30, 2011, as a result of a change in a tax position taken during a prior period. During the next twelve months, it is reasonably possible that DTE Energy and its subsidiaries will settle certain federal tax audits. As a result, the Company believes that it is possible that there will be a decrease in unrecognized tax benefits of up to $84 million within the next twelve months.

Michigan Corporate Income Tax (MCIT)

On May 25, 2011, the Michigan Business Tax (MBT) was repealed and the MCIT was enacted and will become effective January 1, 2012. The MCIT subjects corporations with business activity in Michigan to a 6 percent tax rate on an apportioned income tax base and eliminates the modified gross receipts tax and nearly all credits available under the MBT. The MCIT also eliminated the future deductions allowed under MBT that enabled companies to establish a one-time deferred tax asset upon enactment of the MBT to offset deferred tax liabilities that resulted from enactment of the MBT.

Effective with the enactment of the MCIT in the second quarter of 2011, the net state deferred tax liability was remeasured to reflect the impact of the MCIT tax rate on cumulative temporary differences expected to reverse after the effective date. The net impact of this remeasurement was a decrease in deferred income tax liabilities of $35 million that was offset against the regulatory asset established upon the enactment of the MBT.

Due to the elimination of the future tax deductions allowed under the MBT, the one-time MBT deferred tax asset that was established upon the enactment of the MBT has been remeasured to zero. The net impact of this remeasurement is a reduction of net deferred tax assets of $342 million which was offset against the regulatory liability established upon enactment of the MBT.

Consistent with the original establishment of this deferred tax liability, no recognition of this non-cash transaction has been reflected in the Consolidated Statements of Cash Flows.

Stock-Based Compensation

The Company received an allocation of costs from DTE Energy associated with stock-based compensation of $5 million and $6 million for the three months ended June 30, 2011 and June 30, 2010, respectively, while such allocation was $14 million and $12 million for the six months ended June 30, 2011 and 2010, respectively